Does Wealth Inequality among Universities Pose a Threat to the American Economy? (Part 3)

It’s Not a Good Thing to Be Other Than a King

In Part 1 of this series, I examined a recent report from Moody’s that predicted growing economic separation between a handful of the wealthiest universities and the rest of higher education. Media coverage of the report did not examine the consequences to either higher education or the American economy, should Moody’s prediction prove true, nor did the coverage assess the accuracy of the analysis, something that I sought to address.

In Part 2, I noted that extreme wealth in a handful of famous universities was not true historically, but is, instead, a relatively recent phenomenon.

Now, in Part 3, we look at the other side of the story: What does it mean to higher education in general that wealth is so unevenly and inequitably distributed across the 4,000-plus colleges and universities in this country? And why isn’t there greater concern about this extreme inequity on the part of the American public?

Well, one reason is that we Americans are a competitive lot. We love sports at least in part because they separate the champions from the also-rans. We love the story of Bill Gates, or Warren Buffet, or Steve Jobs because we applaud the heroes of the free market system. And, in the world of higher education, we love those institutions that have risen to the very top of the pecking order.

But we generally don’t love failure. We don’t love our sports teams when they disappoint us by not winning. We are less affected by the fall of corporate titans, since we don’t know them personally, but we certainly don’t admire them when their hubris topples them from their corporate thrones. And, in the world of higher education, we have become skeptical of the inherent value of institutions in the “second-tier” (code for not being wealthy), if only because they are not “first-tier” (that is, wealthy). It’s a variation of the old question, “If you’re so smart, why aren’t you rich?”

For years, many universities and colleges vied to be seen as the next best thing to an Ivy League university. They tried to position themselves to be desirable to students who were almost good enough to be admitted to the Ivy League – but not quite. They reasoned that if they charged almost as much as an Ivy League school, they would be seen as almost as good.

That strategy has fallen apart of late, for several reasons:

Increasingly, in recent years, families have proved unwilling to pay very large sums for anything but an education at a nationally ranked and famous institution. They expect to pay much less at a second-tier college or university, not a little less.

While families in the so-called “one percent” have continued to see their wealth accumulate, the rest of the population has generally still not recovered from the Great Recession of 2008. Fewer families have the financial capacity to pay the published tuition prices at second-tier institutions – and they are increasingly wary of taking on even modest amounts of debt.

Higher education is overbuilt. In many parts of the country, because the number of high school graduates is falling, there are more college seats in total than there are students to fill them. As a result, a price war is under way among all but the wealthiest institutions – and the problem is that very few of these colleges and universities, because they lack large endowments, can afford to wage this price war. There is a real danger that, in their quest to enroll a full class, some colleges will overspend their financial aid budgets, damaging their financial stability, and potentially forcing them to close their doors. In the meantime, prospective students and their families, sensing a buyer’s market, are bargaining even harder for a still lower price.

The deck continues to be stacked against students in the lowest economic quartile. The high prices at many institutions discourage them from even applying. Lower-income families often find themselves in communities with underperforming schools, lessening the likelihood that their children will be accepted at highly selective (and wealthy) institutions that generally offer admission only to the most qualified applicants. Ironically, these are the very institutions that can (and do) meet full financial need of the students they admit – so high-achieving, low-income students who are admitted to such institutions can actually afford to attend them. The problem is that very few institutions have the financial capacity to meet full need, and thus there are effectively very few seats for even the highest achieving low-income students. Sadly, the price of the second-tier institutions is often still too high for these high-achieving, low-income students. As a consequence, they are commonly relegated to open admission institutions, such as community colleges, which they can afford, but at which they are overqualified.

Taking these four factors together, it is readily apparent that the trends in higher education we see under way today will not only continue, but also become more pronounced. That is, wealthy institutions will accumulate still more wealth, even as they raise their prices (and their exclusivity), and, in so doing, they will become even more attractive to the “one percent.” On the other hand, most colleges and universities will find themselves caught in the squeeze of rising costs on the one hand, and an inability (or unwillingness) of families to pay more than a fraction of what a quality education actually costs.

When families are faced with choosing among institutions of similar reputations that claim to offer the same education but at different prices, most will choose the college with the lowest price. As colleges attempt to meet the cost expectations of families, they will be forced to change the very things of which they are most proud: they will replace retiring full-time faculty with adjuncts; they will increase class sizes; they will eliminate low-enrolled majors that don’t pay for themselves; they will streamline the curriculum and minimize elective courses and options; they will put more courses (and programs) online. They will be forced to offer a lower quality educational experience as they endeavor to survive.

The “one percent” will continue to receive the best education money can buy. But most of the remaining 99 percent will receive an education that is increasingly inferior to that received by the one percent – and there will continue to be precious little social mobility between the huge underclass and the tiny aristocracy.

This outcome would be terrible for America and hugely ironic for a country that was founded on the notion that “all men are created equal,” and that emphatically rejected the notion of a monarchy and a ruling class. Moreover, we are, in effect, wagering that our country’s economic future will be assured because sufficient business leadership and innovation will somehow come from providing a high-quality education to less than three percent of our college students (that is, those attending the wealthiest 100 private colleges and universities). In numerical terms, we are putting all of our chips on fewer than 100,000 of the 3.1 million students who enter higher education each fall.

Not many people would argue that the path higher education is on will lead to good outcomes. So how do we find a better path?

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